Natural Gas Caps First Weekly Loss in Month on Supply Outlook

Natural gas futures fell for a second day in New York, capping the first weekly decline in a month, on speculation that stockpile gains may accelerate as the summer cooling season wanes.

Gas dropped 1.3 percent after forecasts for above-normal temperatures in parts of the eastern and central U.S. states moderated for Sept. 11 through Sept. 15, according to MDA Weather Services in Gaithersburg, Maryland. Futures slid 2.9 percent yesterday when the government reported a bigger-than-expected supply gain.

“There is a point late in the summer when the weather can no longer attract buyers, and that may be what we are seeing,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “It’s definitely a follow-on response to yesterday’s higher-than-anticipated injection number. In the next string of injection reports we expect sizable increases.”

Natural gas for October delivery fell 4.5 cents to settle at $3.53 per million British thermal units on the New York Mercantile Exchange. Volume was 31 percent below the 100-day average at 2:36 p.m. The futures dropped 1.4 percent this week, the first decline since Aug. 9, and have advanced 5.3 percent this year.

The discount of October to November futures narrowed 0.3 cent to 8.8 cents. October gas traded 33.7 cents below the January contract, unchanged from yesterday.

Options Trading

October $3.50 puts were the most active options in electronic trading. They were 1.4 cents higher at 7.9 cents per million Btu on volume of 972 at 2:58 p.m. Puts accounted for 54 percent of trading volume. Implied volatility for October at-the-money options was 28.86 percent at 2:45 p.m., compared with 29.48 percent yesterday.

The U.S. East Coast may see temperatures fluctuate between warm and cool during the next two weeks, according to forecasters. Highs and lows may be separated by at least 24 degrees Fahrenheit (13 Celsius) during the course of this weekend in Washington and New York, the National Weather Service said.

The ups and downs may continue through Sept. 20, Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland, said today.

“One of the trickiest parts of the forecast is the back-and-forth variability on the East Coast,” he said in a note to clients.

Temperature Outlook

The high in New York City on Sept. 12 may be 82 degrees, 5 above normal, before dropping to 6 lower than average at 60 degrees on Sept. 20, said AccuWeather Inc. in State College, Pennsylvania. Power generation accounts for 32 percent of U.S. gas demand, according to the Energy Information Administration, the Energy Department’s statistical arm.

A tropical depression that formed in the Bay of Campeche was making landfall near Tampico, Mexico, at about 2:30 p.m., the U.S. National Hurricane Center said. It is expected to weaken as it moves across land, bring heavy rain to the region.

In the Atlantic, Tropical Storm Gabrielle dissipated near the Dominican Republic and remnants of the system have a 20 percent chance of becoming a cyclone in the next 48 hours, the center said in a 2 p.m. advisory. A low-pressure area northeast of that has a 10% chance of strengthening into a cyclone in the next two days.

The Gulf will account for 5.7 percent of U.S. gas production this year, EIA data show.

Gas Inventories

U.S. gas inventories expanded by 58 billion cubic feet to 3.188 trillion in the week ended Aug. 30, below the five-year average increase of 60 billion for the period, EIA said yesterday. Analyst estimates compiled by Bloomberg showed a gain of 54 billion.

A supply deficit to the five-year average narrowed to 1.4 percent from 1.5 percent, the EIA said. A surplus to year-earlier levels narrowed to 6.2 percent from 7 percent.

“With more progress expected to made against the year-on-year deficit and production expected to make a new record, again, this year, prices will remain challenged in the short-run,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today.

The gas-rig count rose by 14 this week to 394, the most since March 22, Baker Hughes Inc. (BHI) data released today showed. The total is down 8.6 percent this year.

Gas production in 2013 will increase for the sixth consecutive year as new wells come online at shale deposits such as the Marcellus in the Northeast, according to the EIA. Output will average 69.89 billion cubic feet a day, up 1 percent from last year’s record of 69.18 billion, the government said in its monthly Short-Term Energy Outlook on Aug. 6.

The U.S. met 87 percent of its own energy needs in the first five months of 2013, on pace to be the highest annual rate since 1986, according to EIA data.

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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